BMW Stock Slides, As It Bets On Electric Cars

By · November 05, 2013

Arndt Ellinghorst

Arndt Ellinghorst, head of automotive research at ISI, today analyzed BMW’s vehicle electrification program, on Bloomberg Television.

BMW’s stock fell as much as 4.8 percent today to 79.56 euros, as the company forecast weaker profitability in the fourth quarter due to investments in new models, including the i3 electric car. It’s unfortunate that an investment in electric cars is bearing the burden of the lower stock price, but on a broader level, it signals the important of the electric “i” brand for BMW.

BMW’s investment represents a much-needed infusion of new blood into the EV space—as we approach the third anniversary of the introduction of the Nissan LEAF and Chevy Volt. The EV story so far has been dominated by American and Japanese automakers. Don’t look now, but it appears the Europeans—led by BMW, with Volkswagen not too far behind—are about to start making waves.

The introduction of the i3 and VW e-Golf could be the major stories of 2014. Earlier today, Arndt Ellinghorst, head of automotive research at ISI, shared important insights into BMW’s vehicle electrification program—and the positioning of European carmakers in the plug-in car market—in an interview with Guy Johnson of Bloomberg Television’s “The Pulse.”

I transcribed the key parts of the interview below. There are two things that jump out to me—both of which, according to Ellinghorst, signal an advantage (and challenges) for Europe in terms of EVs. First, BMW is making a big bet on the i brand because it wants to get ahead on meeting strict European emissions regulations. And second, Ellinghorst believes that European carmakers have better manufacturing when it comes to things like integrating batteries and drivetrains. Meanwhile, the major challenge is an entrenched German mindset focused on internal combustion.

Analyst: A Huge Bet

Guy Johnson: You could always argue that, looking at the investment that BMW is now making into electric vehicles, that it is putting its A Team into this space. It’s certainly spending a lot of money.

Arndt Ellinghorst: Yes, they are spending more than a billion euros on the i brand. They clearly have the most revolutionary approach to electric mobility out of the traditional carmakers. They are taking a huge bet. I think that the market should appreciate that, but you see what happened today. The stock is being slashed 4 percent because the company is spending more on electric vehicles.

Do we understand the dynamics of how much money will have to be invested into electrification to meet the targets that German wants and to meet the targets the car industry wants?

What’s very impressive actually is, if you look at European emission regulations of 130 grams of CO2 [per liter] by 2015, pretty much every carmaker is already meeting all these targets. Now, we’re likely moving to 95 grams by 2020 or 2022. In order to meet these targets, you need increased electrified powertrains. BMW is clearly the most aggressive in that area.

They are taking a bet with this new brand and the new manufacturing technology, carbon fiber. But again, I think the market should appreciate that, and not hammer the stock down.

How easy is it to get talent to do this? I was talking with Elon Musk. He was saying that there’s better talent over in Europe when it comes to…the electrification story. Is it possible that Europe will have an advantage in this space?

I think Europe has an advantage building cars. Full stop. It’s still important to integrate the battery into a car. It’s still important to manage all the drivetrain and all the different features, service network and so forth.

It’s the mindset of traditional carmakers, especially in Germany, has to change. Of course, there’s a huge investment going into traditional internal combustion engines.

And also there’s a fear, if you really think through the whole electric vehicle, there’s a lot of stuff disappearing from cars, that could mean a lot of jobs lost in the auto industry.

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